The elections in Peru of avowed radical socialist Humala is a development of great significance for precious metals and mining investors. It's not an event that has gone unnoticed by experienced speculators. Mining investors worldwide are eyeing July 28th, when the new regime takes control. So far in 2011 investors have sold off mining assets in Peru and are buying the underlying metals.
What we are witnessing is no less than the ongoing sophistication of the third world. Peru is only the latest development in this continuum. “Nationalistas” -- Chavez in Venezuela, Morales in Bolivia, and Lula's successor and protégée, Dilma Rousseff in Brazil -- are raising the ante around the negotiating tables. One cannot help but wonder who is next? Mining investors are increasingly aware of civil unrest and geopolitical uncertainty. Recently they have been in favor of holding the underlying metal, causing a major divergence. There may be a reversion to the mean where high quality projects in mining friendly jurisdictions receive a premium. We must not forget that Peru was recently regarded as a mining haven and a model for foreign investment with such mining giants as Southern Copper (SCCO) and Buenaventura (BVN). Unfortunately 2011 has not been kind to investors in Peruvian equities, as Humala is an unknown and his election victory has significantly weakened assets in the country.
Mining stocks are beginning to emerge from a severe selloff starting in April. No doubt technical damage was inflicted. The recent correction was the most severe downturn in the past two years and had all of the earmarks of a classic panic as it momentarily broke 2011 lows.
We are in the greatest gold bull market since the 1970’s. The metal is up almost 500% over the last ten years. We went through an uncomfortable and painful short term correction in what has always been a volatile arena, add to this the summer doldrums, global unrest, economic uncertainty from the withdrawal from QE2, and the possible advent of QE3.
All of these imponderables add up to confuse and discourage investors. The markets have always done this in an attempt to create the transfer of wealth from weak hands to strong. This is the very essence of market place dynamics.
Mining stocks in mining friendly jurisdictions are regaining their technical strength. There is a divergence between the price of mining stock equities and its underlying assets in all sectors that my firm follows: gold, silver, rare earths, and uranium. However, for every action there is an equal and opposite reaction. The bounce could well be as frenetic on the rise as it has been panic ridden on the decline.
Start getting excited for the second half of 2011.
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